Thursday, March 26, 2020
By Robert Jackson, CPA | COVID-19 Response Team
We are close to having the stimulus package become law. The Apple Growth Partners’ COVID-19 Response Team is actively monitoring the continuous developments to communicate significant updates for clients. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, passed the Senate by a 96-0 vote late on Wednesday (March 25) and is expected to be passed by the House on Friday, March 27. Please note that even though the bill is extensive, certain guidance will still need to be drafted by the IRS/DOL/other; banks will need time to put processes in place and software changes will need to be made. The $2 trillion aid package has many provisions (both tax and non-tax), but here are key tax/employment points from the summary released from the Senate Finance Committee yesterday:
Recovery Rebates for Individuals – Subject to a phaseout based on the last filed 2018 or 2019 tax return – individuals would be entitled to a rebate of up to $1,200 ($2,400 if married) and an additional $500 per child. Note that if your income is over $99,000 ($146,500 in the case of head of household and $198,000 in the case of joint filers) – the rebate would be zero due to the phaseout.
Waiver of Early Withdrawal Penalty – Provision would waive the 10% early withdrawal penalty on up to $100,000 of distributions from retirement plans made for COVID-19 purposes and would spread the tax on those distributions over three years. Caps on contributions during those three years would also be removed.
Waiver of Required Minimum Distributions (RMDs) – RMDs would be waived for 2020.
Charitable Contributions Deduction – $300 deduction for cash contributions in 2020 even if the individual does not itemize. Furthermore – the 50% AGI limitation for individuals would be suspended for 2020, and the 10% limitation on contributions by corporations would be increased to 25%, including food contributions.
Employer Payments on Student Loans – Employers can pay up to $5,250 towards an employee’s student loans after the date of enactment and before the end of 2020 – and these payments would not be taxable to the employee. The maximum $5,250 must be reduced by other educational assistance being paid by the employer.
Employer Retention Credit – Payroll tax credit for 50% of wages paid during the COVID-19 crisis if operations were fully or partially suspended or if receipts declined by more than 50% when comparing the same quarter in 2018. For those employers with 100 or fewer full-time employees, all wages up to $10,000 per employee paid between March 13, 2020 and December 31, 2020 would qualify. But for employers with more than 100 employees – only wages up to $10,000 paid to those not providing services would qualify for the credit.
Employer’s Share of Social Security Tax – The 6.2% match on social security tax would be deferred with half due by the end of 2021 and the other half due by the end of 2022.
NOL Carryback Reinstated – Net operating losses arising in 2018, 2019, or 2020 would be able to be carried back five years, and the 80% taxable income limitation would be suspended.
Excess Business Losses – The loss limitation would be modified to allow excess business losses.
Minimum Tax Credit under the AMT – The refund of prior year minimum tax credits not yet utilized would be accelerated.
Limitation on Business Interest – the 30% limitation would be increased to 50%.
Qualified Improvement Property – Would be 15-year property – thus being eligible for bonus depreciation.
While the House is expected to pass legislation by the end of the week, the specific provisions discussed above are subject to change. If you would like to review the tax and employment summary released by the Senate Finance Committee yesterday, click here. Apple Growth Partners will assist you with understanding and implementing these provisions when they become law.
Please know that in addition to keeping you informed and educating you on processes, that we are developing a team to assist you not only with the tax provisions of the new legislation but also with the loans and grants. Until the details are available and action can actually be taken, please reach out to us with any questions or assistance needed to apply for the SBA loan or communicate your cashflow position with your current banker.
For continuous updates, visit our website at applegrowth.com/COVID19.
Appendix: Economics and Appropriations
Attached is the summary from the Committee on Appropriations S. 3548 The Coronavirus Aid Relief, and Economic Security Act – click here to read the release.
COVID-19 Response Team
Your partners for navigating the COVID-19 updates for business owners.
We realize that there is an exorbitant amount of information of the COVID-19 legislation that is posted to the web and being circulated. Apple Growth Partners wants to provide you with accurate and current information to assist your planning. Remember, the legislative process is not completed once the legislation is passed. Regulatory guidance from federal agencies such as the Department of Labor, Department of Treasury, Department of Health and Human Services, and the Internal Revenue Service will be necessary to fully explain the value and impact that these provisions might have on your business, your employees and yourself.